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Comprehensive Problem 4




Question;Comprehensive Problem 4Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 2014, were as follows:a. Issued 15,000 shares of $20 par common stock at $30, receiving cash.b. Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash.c. Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually.d. Declared a quarterly dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding.e. Paid the cash dividends declared in (d).f. Purchased 7,500 shares of Solstice Corp. at $40 per share, plus a $150 brokerage commission.The investment is classified as an available-for-sale investment.g. Purchased 8,000 shares of treasury common stock at $33 per share.h. Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for $24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment.i. Declared a $1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued.j. Paid the cash dividends to the preferred stockholders.k. Received $27,500 dividend from Pinkberry Co. investment in (h).l. Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of $375. The bonds are classified as a heldto maturity long-term investment.m. Sold, at $38 per share, 2,600 shares of treasury common stock purchased in (g).n. Received a dividend of $0.60 per share from the Solstice Corp. investment in (f).o. Sold 1,000 shares of Solstice Corp. at $45, including commission.p. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method.q. Accrued interest for three months on the Dream Inc. bonds purchased in (l).r. Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income.s. The fair value for Solstice Corp. stock was $39.02 per share on December 31, 2014. The investment is adjusted to fair value, using a valuation allowance account.Assume Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero.Instructions1. Journalize the selected transactions.2. After all of the transactions for the year ended December 31, 2014, had been posted [including the transactions recorded in part (1) and all adjusting entries], the data below and on the following page were taken from the records of Equinox Products Inc.a. Prepare a multiple-step income statement for the year ended December 31, 2014, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were $100,000. (Round earnings per share to the nearest cent.)b. Prepare a retained earnings statement for the year ended December 31, 2014.c. Prepare a balance sheet in report form as of December 31, 2014.Income statement data: Advertising expense ???????????????? $ 150,000Cost of merchandise sold??????????????. 3,700,000Delivery expense ?????????????????. 30,000Depreciation expense?office buildings and equipment??.. 30,000Depreciation expense?store buildings and equipment ??... 100,000Dividend revenue?????????????????? 4,500Gain on sale of investment??????????????.. 4,980Income from Pinkberry Co. investment?????????... 76,800Income tax expense?????????????????.. 140,500Interest expense??????????????????? 21,000Interest revenue???????????????????. 2,720Miscellaneous administrative expense??????????... 7,500Miscellaneous selling expense?????????????? 14,000Office rent expense??????????????????. 50,000Office salaries expense?.???????????????? 170,000Office supplies expense????????????????? 10,000Sales??????????????.?????????? 5,254,000Sales commissions??????????????????? 185,000Sales salaries expense?????????????????.. 385,000Store supplies expense?????????????????. 21,000Retained earnings and balance sheet data: Accounts payable ??????????????????? $ 194,300Accounts receivable??????????????????. 545,000Accumulated depreciation?office buildings and equipment?? 1,580,000Accumulated depreciation?store buildings and equipment ?? 4,126,000Allowance for doubtful accounts????????????? 8,450Available-for-sale investments (at cost) ??????????. 260,130Bonds payable, 5%, due 2022??????????????. 500,000Cash ??????????????.????????? 246,000Common stock, $20 par (400,000 shares authorized,100,000 shares issued, 94,600 outstanding) ???????? 2,000,000Dividends:Cash dividends for common stock???????????? 155,120Cash dividends for preferred stock???????????. 100,000Stock dividends for common stock ??????????? 66,240Goodwill ?????????????????????. 500,000Income tax payable ?????????????????. 44,000Interest receivable ?????????????????? 1,125Investment in Pinkberry Co. stock (equity method)????? 1,009,300Investment in Dream Inc. bonds (long term) ???????.. 90,000Merchandise inventory (December 31, 2014), at lowerof cost (FIFO) or market???????????????.. $ 778,000Office buildings and equipment????????????? 4,320,000Paid-in capital from sale of treasury stock????????? 13,000Excess of issue price over par?common stock??????? 886,800Excess of issue price over par?preferred stock??????? 150,000Preferred 5% stock, $80 par (30,000 shares authorized,20,000 shares issued) ?????????????????. 1,600,000Premium on bonds payable??????????????? 19,000Prepaid expenses??????????????????? 27,400Retained earnings, January 1, 2014???????????? 9,319,725Store buildings and equipment??????????????. 12,560,000Treasury stock (5,400 shares of common stock at cost of$33 per share) ????????????????????.. 178,200Unrealized gain (loss) on available-for-sale investments??.. (6,500)Valuation allowance for available-for-sale investments ??? (6,500)


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